What is the execution order in angularJS?

explain stock order execution

• A few days ago I put in an order to buy a stock at $2.77 limit, before the market opened. The market opened at $2.65 but my order did not execute. The brokerage provided the explanation below. If you agree with me that their explanation is bogus, please post some links and a persuasive argument supporting "our" position. I fail to see how this is not a blatant violation of the SEC's NBBO rules, since whoever sold at $2.65 was clearly ripped off. I missed the opportunity of buying the stock at a low price, as the stock has since rallied 50% from my buy point. -- begin explanation -- I am a supervisor in <Major Brokerage> Response department. I have reviewed your recent order and can confirm that you were not due a fill on the November 9, 2005 buy limit order to purchase 500 shares of INSW at $2.77. There was no error in routing or in a Market Maker refusing to fill your order at the NBBO. Your order did not fill due to the nature of a limit order and how it is executed. Buy limit orders for over-the-counter (OTC) securities are eligible to be executed when the Ask price reaches your limit price. Trades on the sell or bid side of the market do not affect the eligibility of your order for execution. Only the Ask side of the market has any bearing on a buy limit order. The trade for $2.65 that you saw was on the bid side of the market, not the ask. That trade was for 3000 shares, almost a third of the volume for the stock that day. It lowered the price temporarily on the bid side. The lowest ask price for the day was $3.17, well away from your limit price of $2.77. Please note that limit orders are secondary to market orders and are guaranteed a price, not an execution. Even if the stock were to reach your limit price, you are not guaranteed an execution. In order for a limit order to execute, the appropriate bid or ask price would need to remain at your limit price long enough for all market orders to execute and any other limit orders placed before your limit order. Once these criteria are met, then your limit order becomes eligible for execution. -- end explanation --

• Answer:

  Unfortunately, what the brokerage firm told you is correct. I would like to explain to you why they are correct so that you can avoid finding yourself in this situation in the future. Understanding how order fulfillment works, particularly with respect to limit orders, is an important aspect of successful trading. Please request clarification if you have any questions about the following material since the concept is a little complicated because there are actually two prices that are quoted in the market for a stock: its bid price and its ask price. There are two prices because you do not actually directly buy a stock from the seller; instead, there are one or more middlemen known as a market makers who buy and sell the shares from investors like yourself. They maintain an inventory of shares so that they can sell to investors even if no one else wants to sell and can buy from investors even if no one else wants to buy. This is how they "make" the market. However, this involves risk that they must be compensated for. "In the OTC market, trading occurs via a network of middlemen, called dealers, who carry inventories of securities to facilitate the buy and sell orders of investors, rather than providing the order matchmaking service seen in specialist exchanges such as the NYSE." "Over-The-Counter Market" Investopedia.com (2005) http://www.investopedia.com/terms/o/over-the-countermarket.asp. The bid price represents the price at which you can sell a stock to a market maker. The ask price is the price at which you can buy a stock from a market maker. The difference between these is known as the bid-ask spread. The National Best Bid and Offer rule recognizes that there are both bid and ask prices, which govern selling and buying, respectively. "A term applying to the SEC requirement that brokers must guarantee customers the best available ask price when they buy securities and the best available bid price when they sell securities." "National Best Bid and Offer-NBBO" Investopedia.com (2005) http://www.investopedia.com/terms/n/nbbo.asp. Since the ask price did not reach your limit price, your trade was properly not executed. As an individual investor, you cannot directly buy a stock for the bid price nor sell it for the ask price through the market. Only market makers can do that; it is how they make money. "Why is there a bid-ask spread? To compensate for the risk that they run, Market Makers seek to buy shares at a lower price and sell at a higher price. The bid-ask spread is, therefore intended to compensate Market Makers for the risk they take in dealing with the stock and keeping the markets liquid. The size of the bid-ask spread on a particular stock depends on several factors. In general, the more liquid (volume) a stock is the smaller its bid-ask spread will be. Less liquid stocks usually have larger spreads, as do lower priced stocks (in percentage terms). For a fairly liquid stock priced at around $100, a spread of around 75 cents or so is not uncommon. Note that the bid-ask spread is a "hidden" cost for day traders and other investors. It is a cost that is additional to the normal commissions paid for executing trades. For frequent traders, the bid-ask spread can rapidly erode trading capital. These traders should avoid stocks with inordinately high bid-ask spreads, particularly when using market orders. In particular, it is best to avoid thinly traded stocks or stocks priced under $5.00." "The Bid-Ask Spread" Alvaro Oliveira, About.com (2005) http://daytrading.about.com/cs/educationtraining/a/bidask.htm "But what about the ticker itself? If there are all those tiers and orders out there, which ones do we see? If XYZ is NYSE (three digits), the quote might look like: 20-20-1/4 200X50 50,000 $20 is the bid price. Of all the tiers and prices anywhere in the market, $20 at this moment is the highest price a buyer is willing to pay for XYZ. Since this has to be a limit order, the bidder is not willing to pay a dime more than $20. Of all the selling tiers and orders in the market, at this moment, 20-1/4 is the ask price, or the lowest price a seller is willing to accept for XYZ. This is, in effect, the best offer in the market for XYZ at this moment in time. Since both are limit orders, must a trade be executed? Absolutely not. These are merely the bait put out there by the pros as a negotiation tool." "What we are witnessing in bid-ask spreads is negotiation-in-process. Limit orders carry risk - the risk of non-execution on both sides. To make money anywhere, we have to take risk, but not the risk of "Intel looks low today". The risk successful traders take is the willingness to take a stand and walk away in the bid-ask process, through limit orders. " "Why The Bid-Ask Spread Is So Important" By Investopedia Staff, Investopedia.com (December 17, 2001) http://www.investopedia.com/articles/trading/121701.asp Sincerely, Wonko Search terms: bid ask spread